For a moment, it seemed like the food delivery app DoorDash would get away largely unscathed over allegations that it was pocketing its workers’ tips. Now, with an official investigation and a tech worker boycott, there’s a growing problem for the company over its tipping policies.
Last month, DoorDash — along with other food and goods delivery services such as Instacart and Amazon Flex — were accused of using workers’ tip money to subsidize base pay. The policies weren’t new but found fresh scorn after one case went viral, in which an Instacart shopper was paid a $10 tip for an order but only netted 80 cents in base pay from the company. Instacart ended up changing its policies to make sure tips don’t subsidize base pay, and its CEO apologized to workers. DoorDash and Amazon, meanwhile, stood firm by their current pay policies.
While labor advocates were in an uproar over allegations of shady tipping policies, it hasn’t stopped DoorDash from raising money. A few weeks ago, the company received another $400 million in funding. The new round valued DoorDash at a cool $7.1 billion, roughly five times what it was valued at a year earlier.
Instacart was publicly pressured into changing its policies, but from the outside, it may seem like the private financial market has rewarded — not punished — DoorDash for its pay practices, which the company denies are unfair.
Here’s how the model works: DoorDash shows its workers — whom the company refers to as “Dashers” — a guaranteed amount they will receive for delivering an order before they accept it. That guaranteed amount takes into account things like the size of the order, driving distance, traffic, and overall time spent.
The controversy is around whether DoorDash is essentially subsidizing a substantial portion of the guaranteed amount it promises drivers per order through customers’ tips, rather than paying out of its own pocket. This becomes especially problematic according to critics when the driver gets a relatively large tip, and that tip allegedly subsidizes all or most of the guaranteed minimum amount DoorDash is paying the worker.
In 85 percent of cases, the company uses tip money in combination with its own payments to pay the guaranteed amount it quotes workers per order, according to numbers the company shared in a recent article in Fast Company. DoorDash guarantees it will contribute at least $1 per order, but beyond that, tip money can be used toward the total guaranteed amount. However, in 15 percent of cases, customers don’t tip, and DoorDash pays the full guaranteed minimum amount, according to numbers shared in the same article.
The company maintains that, overall, its workers are happier with its current pay system, and one DoorDash worker, Josh Roberts, wrote a Medium post in favor of the current pay policies. DoorDash says internal data shows that 80 percent of workers actually prefer it to an older pay model, phased out in 2017, that was, according to some drivers, more straightforward about tipping and a had flat delivery pay regardless of size, distance, or complexity of the order. The company also shared that net pay to its drivers is about the same as it was under the old model.
A spokesperson for DoorDash emailed the following statement:
Since we implemented our pay model in 2017, Dasher satisfaction has increased while average delivery times have fallen. Dashers tell us they prefer the model because they know the details of the delivery and how much they’ll earn in advance, and Dashers are fairly compensated for every delivery, even when a customer leaves little or no tip. In 2018, with this model, Dashers in the U.S. earned an average of over $17.50 per active hour including tips. DoorDash never reduces pay based on a customer tip—we only increase pay if the tip is small or the order is especially difficult.
While it’s true that DoorDash doesn’t necessarily reduce its workers’ pay based on tip, many, including two DoorDash workers in a class-action lawsuit filed last month, argue that the company is redirecting tip money meant entirely for delivery workers toward the company’s share of what it guarantees to pay workers for an order.
“DoorDash is taking the tip and basically offsetting their own cost with that tip,” said Jim McDonough, an attorney for the class-action suit with the law firm Heninger Garrison Davis.
According to some DoorDash workers, DoorDash’s app makes it difficult for drivers to review how much they were tipped per order, as other delivery apps like Instacart do, which leaves them more open to claims of misdirecting customers’ tips toward the company’s costs.
And now pressure from workers in the tech industry and government leaders could make it harder for the company not to heed calls for more transparency and change around the policies in question. About 200 current and future tech workers, including students at top tech schools for tech recruiting like Stanford and UC Berkeley, signed a pledge as of Wednesday not to work for DoorDash unless it agrees to pay employees a minimum of $15 an hour, after expenses, while on the job.
They also asked the company to provide a more detailed breakdown of pay and to keep gratuities separate from the minimum pay per order. Workers at other tech companies stood outside DoorDash’s San Francisco headquarters last Thursday, talking to full-time employees about how to get their company to reform.
Politicians are taking notice. The city of San Francisco’s Office of Labor Standards Enforcement (OLSE) confirmed it is pursuing an investigation against DoorDash after city supervisor Aaron Peskin filed a complaint. In an interview with Recode, Peskin called the company’s tipping policy “an outrageous business practice” and one that he vows to challenge. If DoorDash is found guilty of violating San Francisco’s labor rules, it could be ordered to pay restitution and fines, and forced to change its policies.
It’s the first time OLSE has launched an investigation into a tech-enabled gig economy company, according to the office’s director, Patrick Mulligan. Investigations can take anywhere from a few months to several years, Mulligan said. Currently, his office has given notice to the company of the investigation and requested documents around its wage compensation.
Separately, Peskin said he has also had conversations with the San Francisco city attorney about potentially suing DoorDash; he told the San Francisco Examiner he is considering drafting legislation on the issue.
Politicians in the state of Washington are also having conversations about protecting gig workers from reported wage theft, according to Sage Wilson, a spokesperson for the labor rights group Working Washington.
Potential recruiting problems
The controversy over DoorDash’s pay policies could limit its ability to recruit top tech talent — especially in a market where there’s a shortage of software engineers and a surplus of tech companies ready to hire them.
When software engineer Anna Geiduschek received an email from a former Stanford classmate, DoorDash CTO and co-founder Andy Fang, trying to poach her to work for his company, she gave an explicit reason for turning him down: her disapproval of the company’s labor practices.
“Classmates don’t let classmates get away with wage theft,” she tweeted with a screenshot of the exchange that was shared widely on the social media platform. Geiduschek, who currently works at Dropbox, was inspired to start a pledge for current and future tech workers, including computer science students at Stanford and UC Berkeley, not to work at DoorDash until they changed their tipping policies and improved pay practices.
For a company like DoorDash, which competes with other startups for engineers like Geiduschek and her peers, there could be a reputational risk for being known as a company that’s accused of dipping into workers’ tip jar — one that might influence tech workers to lend their talents elsewhere, like one of the several other food delivery startups in the area.
“Why is Doordash special when you could work for Postmates or a bunch of other companies?” said Geiduschek.
DoorDash did not respond to several requests for an interview. In a recent Bloomberg interview, DoorDash CEO Tony Xu defended the companies’ pay model, which has been in place since 2017, saying that workers are happier and more efficient than they were prior.
Xu said internal data shows that under the current pay model, Dashers stay on the platform longer, are more satisfied with their jobs, and make deliveries in a more timely manner. He blamed recent backlash on Instacart’s implementation of its own policy.
“We’ve had this around for two years now, and it’s unfortunate that the activities of others have mischaracterized what we’ve been doing for two years,” Xu said of the policy in the Bloomberg interview. “There was no coverage of this two years ago. But all of a sudden there’s coverage because of an experiment that another company ran.”
Xu also said in the interview that DoorDash does not “benefit economically” from its pay model.
In delivery worker forums and interviews with DoorDash drivers, some said they preferred DoorDash’s prior way of paying delivery workers.
“They used to pay out normally, and then they changed their model,” said former DoorDash worker Chris Palmer, who lives in Seattle. “They said it was to make it fairer, more transparent, but it’s just the opposite — there’s no transparency.” Palmer said he quit after he wasn’t making enough money on the platform to get by, working around 70 hours a week but, he said, averaging only $10 an hour in earnings, which is below the city’s minimum wage. He now works at IHOP, where he sees DoorDash delivery workers picking up food from the restaurant daily.
“They all look like they’re in misery,” he said. “Every single one of them.”
Update 3/14/2019 11:16 am ET: DoorDash sent an email to its workers Wednesday saying it will be holding roundtables and sending surveys to gather feedback on its tipping policy, and that it pays an average of $17.50 per hour on a delivery. The company did not specify if that rate includes tips.